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Ebix 4Q18 results +3

12:45 01-Mar-19


Ebix's long-winded conference call has just concluded.  I've said before that managment leaves a bad taste in my mouth, and I think I'm not alone in that judging from the stock's decline as the talk progressed.  It began with a presentation problem early on, where the CEO actually had to take over on the prepared remarks. 

That said, I do see management's growth plans as cogent, though ambitious:

When you put it all together, management aspires to a $750M revenue goal for 2019 with 30%+ operational margin.  I like most of these plans, but execution remains to be proven, and that will take time.  Though more announcements are to be expected, the only fundamental short-term catalyst is that operating margins should grow by a few points due simply to realization of operating synergies from all the recent acquisitions.  These appear to be structured appropriately as vertical silos with centralized corporate support.

Furthermore, all of the current results were negatively impacted by exchange rates.  I expect that trend to reverse within the next two years.  Management continues to look for an IPO of EbixCash or all of its Indian operations, which could grow to be many times larger than the American side of the business, around the end of year, or in 2020.  In keeping with my currency thoughts, I would shade that expectation towards the latter part.  Nonetheless, more established companies like AES have been at pains to point out the growth opportunity in India.  Elections are still supposed to happen in May, despite tensions, which generally benefit the incumbents.  However, no election seems safe these days, so look for a pop if they can be completed without surprise, rather than any gradual rise based on developing news. 

Both India and Ebix are likely to be ugly growth stories.  However, CenturyLink, which has just declared its slap-in-the-face March 11th ex-dividend date, is a counter-example of how execution on stated plans is more important than good presentation.  In my view, the bad reaction to this good report put EBIX back in buy territory.  Ebix does appear to be in the right place at the right time for long-term investors, and it has executed on ambitious growth plans before.  If it can do so again on most of its new ventures, it can tolerate some failures along the way, and will represent a far better opportunity than less aggressively managed entities.

On 3/1/19 8:17 AM, Esekla wrote:

Ebix has reported earnings for its fourth quarter:

  • $1.06 in EPS beats by 11 cents
  • on $136.3M in revenue, which beats by $6.3M

Note that GAAP EPS is 27 cents.  The difference is due to transition tax for repatriating earnings held outside of America.  This removes yet another sticking point that pundits on message boards would sometimes spin against the company.  I am hoping that management will start entering a period where debt is steady or declines, and further partnerships are enabled by using stock as a more valuable currency.

That may be difficult in India, and would need to be done as non-dilutively as possible, but the groundwork has been laid.  966,773 shares were repurchased for $47.4M, which implies an average price of $49.03 per share and seems like a good use of capital.   The company further says it expects its diluted share count to be approximately 30.7 million in Q1 2019 and Q2 2019, down from 31.3M.  This implies no further immediate share repurchases, which I am also glad to hear.  The premarket isn't showing any real movement yet, but I expect the stock looks set to trade above $60 in reaction to this report.

The conference call is at 11am and I will write again, assuming I hear some interesting color on future plans.